Tuesday, April 5, 2011

Deep and persistent problems: the housing market and unemployment

By Stephanie Allen, Project Assistant

At the end of last week, whenMarch’s unemployment numberscame out (8.8 percent, down from 8.9 percent in February and 9.8 percent in November), economists and economics reporters across the county urged us to be cautiously optimistic (if optimistic at all). Earlier in the week, with the release of the latest Case-Shiller report and the news that housing prices in January had dropped 3.1 percent since January 2010, we were warned that by summer we will probably see a double dip in the housing market. The recession ended over 21 months ago, but weak employment growth and a decimated housing market are continual reminders that the future we’re headed for may look nothing like the recent, prerecession past.

It’s now widely accepted that housing prices won’t rebound to 2005-2006 levels, but last week’s report shows that prices in 11 of the 20 areas tracked by the index hit new post-bubble lows in January. The 10-City and 20-City Composite Home Price Indices have been falling since August 2010. Patrick Newport, an IHS Global Insight economist,suggeststhat we will see a double dip by June. None of this is very good news, and you may remember that back in November Mark Zandi, chief economist for Moody’s Analytics, predicted that 2011 would be a rough year for the housing market (see myblog postfrom 11/8/2010), with the housing market finally hitting bottom and beginning to recover come this November. While the housing market is still very much a dark cloud hanging over the U.S. economy and while it seems the worst may not yet be over, there is still hope that if we can just wait it out that by the end of this year we may finally see sustainable recovery in the housing market.

The jobs market is another story. We have seen sustained growth (not counting census hiring/firing) for a year now, since March 2010, and unemployment has dropped to a 23 month low, but the prevailing sentiment of reports coming from economists doesn’t seem to be hope—perseverance, sure, but not hope. Wehearthat we’re still 7 million jobs down from the pre-recession employment peak and that we’re simply not adding jobs back fast enough. We watch as the labor force participation rate stalls at 64.2 for the third month in a row and the employment to population ratio creeps very slowly up from its 26 year low in December 2009 (58.2 percent).

It seems few economists think we’ll be digging ourselves out of this hole anytime soon, and some, if not most, would probably prefer we abandoned the whole hole metaphor altogether because we’re likely not going to be able to recapture those 7 million jobs or our prerecession prosperity. Take Alan Krueger, an economics professor at Princeton and former assistant secretary for economic policy at the U.S. Treasury. He argued inBloomberglast week that we weren’t creating enough jobs even before this recession began. He thinks our job creation problem is an even deeper and more disturbing problem for the economy than we may now want to acknowledge.

So what should we do? I think perseverance is the right attitude. It’s been 21 months since the recession ended and we haven’t really seen much recovery. It’s time we stop sitting on our hands and hoping the recovery will come. It’s time we stop focusing all of our attention on damage control and stop-gaps, realize that things may not get better any time soon, and start planning for the future. J. Mac Holladay, our CEO and Founder is fond of noting, “It’s a new time, new things; it’s tougher and we are in a different place.” If we can recognize that, really recognize that, we can start to plan a more prosperous future. If we’re waiting to be dug out of the recession, if we’re waiting to just get our heads back above water before we think about the future, we may just – to mix metaphors – drown in that hole.